Is it possible to remove all partitions when upgrading from Windows XP to Windows 7?

I bought a Windows 7 upgrade version to upgrade a laptop with Windows XP. The upgrade needs to be done with a clean install, and I would like to change the partitions as well.

Microsoft explains (in step 3) that if you want to do this, you have to install during boot and go to the partition editor:

(...) If you want to format your hard disk, and you're using an upgrade version of Windows 7, don't use a program from another software manufacturer to reformat your hard disk prior to installing Windows 7. Instead, start your PC using the Windows 7 upgrade installation disc or a USB flash drive, click Custom (advanced), and then click Drive options (advanced).

I am there now, but I am unsure if I can remove all partitions now. In some way the installer needs to know that Windows XP is currently installed to be able to preform a legal upgrade. Microsoft remains unclear about the options here.

Can I just remove all partitions and create new ones? Or do I need to keep the current Windows XP partition during installation?

From reading through this, it does seem like the Windows 7 upgrade edition requires you to have a Windows XP installation on one of your hard drive's partitions in order to install.

There may be workarounds to get it to install without XP on the drive, but my suggestion would be to simply run the Windows 7 installation. From the guide above:

"Windows 7 Setup does its compliance checking before the phase of Setup where you format the disc. (Unlike with Windows Vista.) This means that you can format your existing hard drive, and blow away a previous Windows version, and not worry about activation. If it was there, Windows 7 will still activate."

Therefore you can safely remove all partitions while you are in the partitioning screen from the installer:

Don't remove the partitions beforehand - let the Windows 7 installer do its verification that this is a real upgrade (this is done when you arrive at the partitioning screen). You can then format and repartition during the installer and all will be fine.